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| IMPACT OF CHANGES IN THE
CALIFORNIA EXPERIENCE RATING PLAN |
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Effective January 1, 2010 California Insurance Commissioner Steve Poizner has approved changes to the methodology of the workers compensation experience rating plan (ERP).
There are three major changes to the ERP that impact experience modifications for California Employers. |
- Changes to the methodology of calculating Expected Loss Rates (ELR). Studies showed that some expected loss rates were higher or lower than indicated by actual experience. Some ELR’s increased and some decreased for an average of a 6.4% decrease overall. Generally speaking, as an ELR increases, an individual experience modification will decrease assuming all else is equal.
- Primary Actual Losses now utilized a single split point of $7,000 to separate claims into primary and excess components. Primary actual losses can not be greater than $7,000. This means that individual losses less than $24,500 will be include at a higher primary actual loss, and increase experience modifications all else being equal. Losses greater than $24,500 will be included at a lower amount in the primary actual losses, and will result in a lower experience modification all else being equal.
- Changes in the credibility factors (“B” and “W” Values) to reflect the adoption of a primary / excess split point of $7,000 and to reflect recent frequency and severity trends. Full primary credibility is now given to all risks with total expected losses of $40,147 or greater. This means if expected losses are greater than $40,147, then the “B” value will be zero (0). This will lower experience modifications for employers with primary losses less then expected losses. The opposite will occur when primary losses are greater than expected losses.
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Finally, employers are asking how these changes will affect their individual experience modifications. While there are no hard and fast rules for an individual employer, the following trends have been noticed. |
- If your experience mod is below or above 1.00, the new formula will increase the gap from 1.00. If your mod is under 1.00 then your mod will decrease assuming the same loss experience. The opposite is true if your mod is over 1.00.
- For employers with a high frequency rate (losses under the $7,000 split point) the experience mod will increase.
- For employers with high severity (few losses greater that the $7,000 split point) there is little change in the experience modification.
- Smaller employers will see more of an impact than larger ones.
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Please feel free to contact us for an analysis of your experience modification. |
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